Legislature makes a move on pension systems.
As I write this article, we are dealing with a bill in the legislature that impacts both LEOFF 1 & 2. The bill is poorly constructed and has only one sponsor and, as such, may not survive to reach the floor. It is Senate Bill 5453 and is currently in the Senate Ways & Means Committee.
For LEOFF 2
The bill would increase the pension multiplier from 2% to 2 ½% for service years 15 to 25. Additionally, it proposes a direct payout of $20,000 for each member. Sounds good does it not? The trick is it applies only to active members so that most of you who read this site, being already retired, will not partake.
A second negative is that this proposed benefit enhancement will utilize all the LEOFF 2 resources. That means that when the time comes for pension contribution adjustments that cushion will not exist.
This bill may die in committee or get attached to a budget agreement later in the session so, as of now, it is an idea but one without strong support. It certainly pays to watch it carefully.
For LEOFF 1
The bill is a nightmare for LEOFF 1. It takes all the assets out of the LEOFF 1 fund and combines them with TRS 1. This retirement system shall be known as the merged LEOFF 1/TRS 1 retirement plan.
(Note: LEOFF 1 is currently funded at 141% while TRS 1 is funded at 65%. Once combined they would both be funded at about 94%. These percentages are only calculated every two years so the numbers might be slightly different, but the outcome is the same.)
The legislation is careful to point out and insist that there would be no changes in the benefits provided by the plans. The problem is Washington State does not have a good record of meeting its pension funding obligations.
Prior to enactment of the Pension Funding Reform Act in 1989, contributions to the TRS Plan 1 were made on an ad hoc basis. For the nine biennia (18 years) extending from 1973 through 1991, the full funding requirements of PERS, TRS, and LEOFF were satisfied by the legislature only once. Actual contributions ranged from a low of 60 percent of the required amount in 1973-75 to a high of 95 percent in 1979-81.
After passage of the Pension Funding Reform Act, the legislature embarked upon a 12-year period (1991-2003) of funding 100 percent of the actuarially required contributions. However, in the 2001-2003 and the 2003-2005 biennia the legislature again created a gap between the actuarially required contributions and the amounts appropriated for expenditure, funding the retirement systems at the 70 percent level for 2003-2005.
We do not currently have the data for the intervening biennia, but the continued status of seriously underfunded proves they have not honored their own promises. We see the legislature now attempting to circumvent the UAAL payments by creating the so called TRS 1/LEOFF 1 merger.
It is clear that the legislature does not want to fund the pensions and it becomes obvious that this under-funding is likely to continue as the legislature continues to fail to meet its obligations.
This is, of course, why LEOFF 1 members are frightened by the proposed merger. We simply cannot trust the legislature to fund the pensions properly. LEOFF 1 has been fortunate to be one of the pension systems where the funding has been adequate. It should stay that way.
Pension funding is a complicated process based on actuarial data and long-term income calculations. There are, however, a couple of established rules. First and foremost, the money in the pension system belongs to the members and their beneficiaries and can only be used for their exclusive benefit. That is why you will always find an underfunded pension to be result of the failure to put money into the system, not from taking money out. The state likes to not put money into the system. They do it all the time. That is what they want to do here. This bill would relieve the state from the obligation to fund TRS 1 and leave enough space to not bother with funding it for several years. They do this by taking money out of LEOFF 1. And that is a no-no.
WAC 415-02-756: No assets of the retirement system may be used for or diverted to a purpose other than the exclusive benefit of the members and their beneficiaries at any time prior to the satisfaction of all liabilities with respect to members and their beneficiaries.
The State thinks it owns the money in the system, the Cities & Counties think they own the assets, and the members and beneficiaries think they own it. The issue remains undecided and could well send this bill to the Supreme Court.
The legislature has been attempting to merge systems for many years. Most of the arguments dealing with these plans have been well documented and can be seen at www.leoff1.net.
We are closely monitoring the progress of this and we are reviewing our options both politically and legally.Follow us on Facebook